Business Ethics: Concepts & Cases: Chapter 1 Outline
Ethics and Business

Introduction

Velasquez's Thesis: Ethical behavior the best long term business strategy

•  Merck & Co. a case in point
• Ethical behavior is the best long-term business strategy means
• in the long run
• & for the most part
• ethical companies enjoy significant competitive advantages over unethical ones
• Why ethical behavior pays off in the long run & for the most part
• customers  more likely to buy from a business known to be honest & trustworthy
• employees are more likely to loyally join & faithfully serve a company that treats its workers with loyalty and respect
• Assuming that it pays to do the right thing . . . still it's not easy to know what that is: e.g., how to balance
• duties to shareholders
• rights of employees
• needs of customers
• obligations to society

1.1 The Nature of Business Ethics

• What does ethical mean: Study of businessmen
• "What my feelings tell me is right" (50%): Doing what your conscience tells you.
• "What is in accord with my religious beliefs" (25%): Doing what the church or bible says.
• What "conforms to the golden rule" (18%)
• Inadequacy of all these answers in theory & practice
• "conscience" sometimes commands wrongly or not at all
• religion: sometimes commands wrongly
• especially others' religions, we're inclined to think
• Salmon Rushdie fatwah example
• "You shall not suffer a witch to live"?
• the golden rule:
• perhaps commands wrongly: different strokes for different folks
• hard to interpret it

Morality

• Definition: "the standards an individual or group has about what is right and wrong, or good and evil"
• Contrast: standards we hold about things that are not moral
• legal standards
• etiquette: rules of politeness
• aesthetics: good & bad art; what's beautiful, ugly, etc.
• Five Characteristics of moral standards
1. deal with matters we think can seriously injure or benefit human (& other sentient?) beings
2. not established or changed by the decisions of authoritative individuals or bodies
3. are overriding: take precedence over other standards & considerations (especially of self-interest)
4. are based on impartial considerations: like my momma said
• "what if you were them?"; "
• "how'd you like someone to do that to you?"
5. associated with special emotions and vocabulary
• emotions like guilt, shame, & remorse
• vocabulary like "wrong", "right", "ought", "good", "bad", "immoral"
• 
• We absorb these standards as children from a variety of influences and revise them as we mature

Ethics

• Definition: the activity of examining one's moral standards or societies' and asking
• how these standards apply to our lives
• whether they are reasonable or unreasonable
• Ethical v. Social Scientific Study of morality
• Social scientific study is descriptive: what there standards are & how they came by them (not, e.g., whether they're reasonable): Is
• anthropologists: taboos of the Trobriand Islanders
• social scientific: the value system of neo-nazi groups in the U.S.
• psychological: the moral development of the child
• Ethics is a normative (i.e., evaluative study of morality): Ought
• questions about consistency & rationality
• completeness & adequacy

Business Ethics

• Definition:
• V: normative study of moral standards as they apply to business policies, institutions, and behavior
• LH: the ethical analysis of business practices
• Business defined
• preliminary definitions
• a society = people who have common ends and whose activities are organized by a system of institutions designed to achieve those ends
• institutions = relatively fixed patterns of activity
• economic = pertaining to the production & distribution of goods and services
• businesses =  the primary economic institutions through which people in modern societies carry on the tasks of producing and distributing goods and services
• Corporations: the most significant kinds of modern business enterprises
• "dominant life form on our planet in the 20th century" (Wm. Gibson)
• top 500 U.S. companies: account of 80% of all industrial profits
• & hold 80% of all industrial assets
• corporations = immortal "fictitious persons" with rights, in their own name, to
• sue & be sued
• hold & sell property
• enter into contracts
• Organizational structure
• stockholders
• contribute capital
• own the corporations
• liability limited to capital contributed
• directors or officers
• administer the corporation's assets
• run the corporation, typically through various levels of middle managers
• employees: do the basic work related to the production of goods & services
• Three kinds of Issues for Business Ethics (arising from the purposes & structure of Corporations)
1. systemic: concerning the economic, political, and other social systems within which businesses operate.
2. corporate: concerning issues & practices of a particular company
3. individual: concerning particular individuals within companies

Applying Ethics to Corporate Organizations

• Problem: are corporations moral agents capable of acting morally & immorally just as people are
• are corporations as a whole morally responsible for their acts?
• or does moral judgment & responsibility apply only to the individuals who make up the corporations?
• Corporate responsibility theory: Corporations have moral responsibilities as such.
• Pro: the rules that tie corporations together allow us to say
• they "act" as individuals and have "intended objectives"
• hence, they are "morally responsible" for these acts & objectives
• Con: Organizations don't really "act" or "intend" as persons do
• Corporate nonresponsibility theory:
• Pro: Corporations are morally nonresponsible.
• Con: Moral responsibility percolates up.
• The humans that comprise the corporation can make responsible moral decisions.
• so can the corporation.
• Velasquez's "Intermediate" View
• When an organization's members collectively, but freely and knowingly pursue some objective it makes perfect sense to say the acts they perform for the organization are "moral" or "immoral" and that the organization [n.b.] is "morally responsible" for these acts.
• Nevertheless individuals are the primary bearers of moral responsibility since "corporate acts originate in the choices and actions of human individuals"
• Organizations have moral duties, etc. in a secondary sense: A corporation has a moral duty to do something only if its members have a moral duty to make sure its done.
• Velasquez's Concession: corporate policies, culture, norms, and designs can & do "have an enormous influence on the choices, beliefs, and behaviors of corporate employees" [& officers?!]
• Not so concessive
• But these corporate policies, etc., do not make the individuals' choices for them.
• So the policies or the corporation are not responsible for these individuals' actions.
• How to square with this: "corporate actions flow wholly out of [human] choices and behaviors."

Globalization, Multinationals, and Business Ethics

• Most large companies today are multinationals: firms that maintain operations in many different countries.
• The fact that multinationals operate in more than one country produces ethical dilemmas
• Able to shift operations out of one country & into another that offers more favorable conditions, e.g.,
• cheaper labor
• less stringent laws: e.g., environmental regulations
• lower rates of taxation
• Enabling them to playing off one government against another (as happens even between U.S. states)
• to escape social controls (e.g., minimum wage laws, safe working condition laws & environmental laws)
• even taxes
• Moral Dilemmas Posed by these Abilities: requires choosing between the needs & interests of the business & those of their host countries.  Their ability to relocate v. the expense of relocation, threat of confiscation, etc. by host countries means they can face hard choices:
1. To go along with ethically questionable local practices (e.g., apartheid as previously practiced in South Africa) v. risk their operations & market in the host country
2. To practice tax avoidance to the maximum of their abilities v. paying what might be viewed as their fair share
3. Benefits of technology transfer v. risks

Business Ethics and Cultural Differences

• Ethical Relativism (ER) holds
• Negative thesis: there are no ethical standards that are absolutely true for all societies
• Positive thesis: something is right within a given society if it accords with that societies moral standards.
• "When in Rome do as the Romans."
• But what if what the "Romans" practice is routine bribery of government officials, gender discrimination, or the like?
• Counters to ER
• Fact of cultural disagreement over the likes of
• polygamy & homosexuality
• infanticide & abortion
• slavery and racial & sexual discrimination
• genocide & the torture of animals
• Doesn't necessarily mean there are no objective standards that are universally true
• there is disagreement over whether the human species evolved from apes
• still there's plain truth about the matter (regardless of whether we could find it out)
• not true for creationists that we did and true for evolutionists that we didn't
• either we did or that we didn't is just plain true, for everyone & either the evolutionists or the creationists are just plain mistaken
• similarly there's plain truth about the matter of genocide
• not right for nazis but wrong for us
• just plain wrong: nazis are just plain mistaken
• Some norms or standards are universal in the sense that every society must have them
• norms forbidding indiscriminate injuring and killing of other members of society
• norms forbidding theft
• norms enjoining truth telling & censuring lying
• Seeming different practices may express shared underlying values
• Inuit abandonment of the aged v. our nurture of the aged might reflect similar value on community survival
• Cannibals who eat their dead and we who bury or cremate our dead may share an underlying value of honoring the dead (just have different opinions in how to go about it).
• Most telling criticism: Absurd Consequence
• If ER were correct then the moral standards of a society are above criticism
• either internal criticism by members of that society
• or external criticism by those outside of that society
• But the moral standards of societies are not above criticism in this way
• So ER is not correct

Technology and Business Ethics

• "Technology consists of all those methods, processes, and tools that humans invent to manipulate their environment."
• Radical technological transformation poses special ethical challenges
  • being disruptive of former economic & social structures
  • such transformations engender challenges & conflict
• Ethical issues therein raised concern (LH)
  • Utility: risk vs. promise: costs v. benefits of the transformations
  • Justice: fairness of the distribution of resulting costs or risks & benefits
  • Culture & Character: human habitability of the world as transformed ... do we really want to go there (1984? BNW?)?
• Notable Technological Revolutions
  • Agricultural revolution: "humans developed the farming technologies that enabled them to stop relyuing on foraging and on the luck of the hunt": growth of affiliated technologies (e.g., irrigation, tool-developments, etc.) and social stability "eventually allowed humans to accumulate more goods than they could consume, and out of this surplus grew trade, commerce, and the first businesses."
  • Industrial revolution: "transformed Western society and business, primarily through the introduction of electro-mechanical machines powered by fossil fuels such as the steam engine, automobile, railroad, and cotton gin."
    • subsequent nationalization and now globalization of markets and trade
    • mass production and giant enterprises
    • the rise of "the large corporation that came to dominate our economies and that brought with it a host of ethical issues for business including"
      • exploitation of the workers who labored under these new conditions
      • manipulation of financial markets
      • producing massive damage to the environment
• New Technologies Now Transforming Society
  • Information technology including the internet and cyberspace.
    • issues of privacy
    • issues of property: copyrights v. "fair use"
  • Nanotechnology poses unknown risks
  • Biotechnology and especially genetic engineering poses dimly understood ecosystemic risks

1.2 Moral Development and Moral Reasoning

Moral Development (skip)

Moral Reasoning

• Reasoning by which actions or policies are judged to accord with or be in violation of moral standards
• Has two essential components
• Evaluative component: beliefs concerning what the relevant moral standards are
• A factual component: evidence or information about which courses of action meet or fail to meet the standards
• Example
• Racial & sexual discrimination is wrong. (Evaluative premise.)
• Affirmative action is (reverse) racial & sexual discrimination. (Factual premise)
• Affirmative action policies are wrong.
• Not always easy to separate the two
• Different opinions concerning the facts
• May mask different understandings of the standards
• faux factual question?: whether reverse preferences are discriminatory.
• masked evaluative question: whether discrimination against dominant or historically advantaged classes is wrong.

Analyzing Moral Reasoning

1. Logical validity
• does the conclusion really follow from the premises?
• given some hidden assumptions?
2. Concerning the factual evidence
• Is it accurate?
• Is it relevant?
• Is it complete?
3. Concerning the moral standards
• Are they consistent with other acknowledged moral standards
• Are they being consistently applied
• Consistency requirement: If I judge that a certain person is morally justified (or unjustified) in doing A in circumstances C, then I must accept that it is morally justified (or unjustified) for any other person to perform any act relevantly similar to A in any circumstances relevantly similar to C.
• Method of Hypothetical Counterexamples
• How would you like it if your brother did that to you?
• Ought to be willing to receive what you dish out: compare the Golden Rule.
• Moral standards should be such that you would be willing to accept regardless of whether you were on the giving or the receiving end.

1.3 Arguments for and Against Business Ethics

Three Arguments Against Bringing Ethics into Business (skim)

• Perfectly free markets insure maximum social benefits better than anything else
• Pro
  • leads most efficiently to the production of goods & services that the buying public needs and wants.
  • attempts by managers to impose their moral convictions only gets in the way of the workings of the marketplace
  • so managers should single-mindedly pursue profit to the exclusion of all else (including what they take to be morality)
• Con
• Questionable assumptions:
• in fact industrial markets are not perfectly free
• not all profit increasing practices are socially beneficial
• unconstrained pollution
• deceptive advertising
• price fixing
• the buying public <> the public: distribution of goods & services also an essential purpose of economic institutions
• Inconsistency: the conclusion that managers should single-mindedly pursue profit to the exclusion of all else (morality included) is itself a normative ethical judgment
• Loyal Agent's Argument
• The Argument
1. A loyal agent's duty is to serve his/her employer as the employer wants to be served.
2. An employer wants to be served in whatever ways will advance his/her self-interest.
3. Therefore, as loyal agents of their employers (stockholders) managers have a duty to serve their employers in whatever ways advance their employers self-interest.
• Objections
• Inconsistency
• the argument rests on an normative/ethical assumption (an agent's moral duty being asserted)
• to argue that ethical considerations don't apply in business
• Assumes there are no limits to an agent's duty to serve his employer, but
• the managers duty to serve his employer are limited
• by duties as citizen, etc.
• by morality & even law
• law of agency
• "when considering whether or not orders . . . to the agent are reasonable . . . business or professional ethics are to be considered"
• "in no event would it be implied that and agent has a duty to perform acts which are illegal or unethical"
• Nuremberg Principle: "Following orders" does not excuse immoral actions.
• Business ethics is essentially just obeying the law
• Pro:
1. Wrongful business practices are those forbidden by law.
2. Therefore following the law is sufficient to prevent wrongful conduct in & by businesses
• Con: legality <> morality
• some correspondence: laws prohibit rape, murder, & fraud (which are also immoral)
• but some illegal acts are not immoral
• due to insignificance of what's regulated: e.g., parking laws
• because the laws are unjust
• laws enforcing slavery & later racial segregation in the U. S. South
• Nazi laws against harboring Jews
• some immoral acts are not illegal
• e.g. killing & raping slaves was not illegal in the U. S. South
• lying to your spouse
• deceptive promotions, e.g.,
• Publishers Clearinghouse style "you have already won" promotions
• Telemarketing aimed at bilking the elderly
• morality couldn't shape our laws if morality equaled legality
• if legal equaled moral then whatever the law enjoins is moral by definition
• and whatever it forbids would be immoral by definition
• Examples
• Abortion is not illegal.  Therefore, it's not wrong, so it shouldn't be made illegal.
• Marijuana possession is illegal.  Therefore it is wrong; so it should be against the law.
• Compare the objection to Ethical Relativism: Law would be beyond criticism.
• Nevertheless, most hold there is a prima facie moral obligation to obey the law
• exception to be made only in cases where what the law enjoins is seriously wrong or unjust
• distinction to be made between:
• between civil disobedience:
• Rosa Parks not going to the rear of the bus (but note -- a "piddling matter" this seems too: "My feet are tired" was Rosa Parks' reason for not giving up her seat)
• draft resistance during the Vietnam War
• Harboring Jews in Nazi Germany
• mere scofflawism
• shoplifting
• underage drinking
• most illegal drug use

The Case For Ethics in Business

• Simple Argument
• Ethics should govern all human activities.
• Business is a human activity.
• Therefore, ethics should govern business too.
• Argument from Businesses Need for Ethics
• Businesses can't survive without ethics
• business requires at least a minimal adherence to ethics on the part of those involved in the business: e.g., the honoring of contracts by customers, managers, & employees
• business requires a stable society in which to carry on its dealings: morality is a stabilizing force in society.
• Therefore it is in the best interests of businesses to promote ethical behavior (and practicing it is the best way to promote it).
• Argument from the Consistency of Ethical Considerations with Business Pursuits (of profit)
• Observed evidence
• example of Merck, Inc. and others shows business can have exemplary ethics & still be very profitable
• no studies have found a negative correlation between socially responsible behavior and profits.
• Reasons behind the profitability of ethical behavior (cited earlier in connection with the Merck example): ethical behavior cultivates good will & loyalty
• among customers
• among employees
• Game theoretic considerations: "the prisoner's dilemma" lesson: "when people deal with each other repeatedly, so that each can later retaliate against or reward the other party, cooperation is more advantageous than continually trying to take advantage of the other party."
• Unethical businesses become targets of moral outrage which works to their detriment.

1.4 Moral Responsibility and Blame

•  Two sorts of moral questions
• about the rightness or wrongness of actions
• about who to blame for wrongdoing: especially sticky in cases of corporate wrongdoing: questions about responsibility & blame
• People are not blamed for every unfortunate consequence of their actions
• some bad consequences are accidental
• unforeseen or even unforeseeable consequences
• Conditions of Moral Responsibility: A person is morally responsible only for those acts and their foreseen injurious effects of deliberate acts or ommissions
• commission
• knowingly and freely performing or bringing about
• what it was morally wrong for the person to perform or bring about
• omission
• knowingly and freely failing to perform or to prevent
• which it was morally wrong for the person to fail to perform or prevent
• Excusing Conditions & Mitigating Conditions
• Excusing Conditions: Total absolve the agent of blame: Eliminate responsibility
• ignorance: didn't know asbestos exposure was carcinogenic
• inability: workers refused to wear protective masks & company was unable to force them
• Exceptions to Excusing Conditions
• Willful ignorance: carefully avoided studying up on the effects of asbestos exposure because they didn't want to know.
• Ignorance of Principle vs. Ignorance of Fact
• Example
• Principle: bribery is wrong
• Fact: by tipping a customs official I was actually bribing him into canceling certain import fees
• Both exculpatory to they extent that they are not willful
• Mitigating Conditions: partially absolve the agent of blame: diminish responsibility
1.  Circumstances which leave a person uncertain but not altogether unsure about what they're doing
• person may have doubts about the facts and the seriousness of the standards involved
• examples:
• wrongdoing -- e.g., what gets "winked at" in a certain corporate culture -- so it doesn't seem so bad (everyone's doing it)
• your not from around here
2. circumstances making it difficult but not impossible to avoid doing it
• decisions taken under threats or other kinds of duress
• e.g., middle managers getting pressured from above to disregard safety standards or impose unrealistic production goals (less culpable than a middle manager who did this on their own initiative)
3. circumstances that minimize but do not completely remove a person's direct involvement in the act: diminished instrumentality
• Commission vs. omission: generally people are held to be more responsible for things brought about by their action than by their inaction: e.g., drowning someone vs. failing to rescue them (at no risk to oneself).
• "Not my department": omission or acts that are not your specified responsibility judged less serious:
• if an accountant specifically hired to audit a companies books chooses not to report discrepancies they're more seriously to blame
• that a bookkeeper who suspects irregularities but says nothing
4. Factoring in the seriousness of the wrong
• if the wrong is very serious, then uncertainty, duress, and lessened involvement are less mitigating: with so much at stake the agent
• ought to have found out the score
• ought to have done the right thing regardless of duress
• should have made it their business to do something
• Example: my employer says sell this lemon or you're fired
• I know the car's cd-player is about to go.
• I know the car's brakes are about to go out.
• Critical Contentions about mitigating factors
• duress is no excuse (some say)
• there's no real difference between omission and commission: letting die is as bad as killing (some say)

Corporate Responsibility

• Corporate acts: acts brought about by several actions or omissions of many different people all cooperating together so that their linked actions and omissions jointly produce the corporate act.
• Question: Who is morally responsible?
• "Traditional" Individual Responsibility View: those who knowingly & freely did their parts are each morally responsible for the act.
• Alternative Corporate Responsibility View: the corporate group and not the individuals who make up the group must be held responsible.
• Pro Corporate Responsibility
• We (and the law) say EXXON was responsible for the Valdez oil spill: not just the Captain (though he was drinking) + the person who hired this captain + . . .
• More often than not . . . employees of large corporations cannot be said to have "knowingly and freely joined their actions together" to bring about a corporate act or pursue a corporate objective.  Employees of large-scale organizations follow bureaucratic rules that link their activities together to achieve corporate outcomes of which the employee may not even be aware.
• engineers may design a product with certain weaknesses not knowing
• that marketing dreamt up an application for which the product is unfit and plans to sell the product for that application (without knowing its unfit for that application)
• Traditionalist rejoinder: in such cases ordinary mitigating factors suffice to mitigate the employees responsibility without appeal to any such notion as "corporate responsibility"
• Example:
• e.g., the engineers didn't know it would be used that way
• e.g., the marketing dept. didn't know it couldn't safely be used that way
• Amply mitigates the individuals: but isn't there some responsibility left over that belongs to no particular individual but rather the Corporation: say due to its corporate culture engineers don't talk to marketing

Subordinates' Responsibility

• Corporations generally have hierarchical authority structures in which
• those above issue orders & directives
• which those below them are expected -- on pain of dismissal -- to follow & carry out
• One view: those who are "only following orders" are not responsible for the acts that result (only those who gave the orders): the Nuremberg defense.
• When a subordinate acts on the orders of a legitimate superior this absolves the subordinate of all responsibility for the act.
• They were only "following orders"
• The Post Nuremburg Principle
• A subordinate has no obligation to obey an immoral order -- quite the contrary
• The subordinate's responsibility
• may be mitigated by the duress: "Do it or I'll find some one who will," the Boss says.
• but they are not excused.
• The superior bears unmitigated responsibility
• the fact that the superior used a "human instrument" (the subordinate) to do the act
• does not diminish the superior's own "instrumentality" in bringing it about.

Cases for Discussion

Slavery in the Chocolate Industry

1. What are the systemic, corporate, and individual ethical issues raised by this case?
2. Is child slavery absolutely wrong (no matter what) or only relatively so (depending on whether your culture disapproves of slavery)?
3. Who shares the moral responsibility for the slavery occuring in the chocolate industry?

Enron (ABC News Video)

1. What are the systemic, corporate, and individual ethical issues raised by this case?
2. Who was morally responsible for the collapse of Enron?
3. If Enron had not collapsed and Enron's accounting practices had adhered to the letter if not the spirit of the Generally Accepted Accounting Principles would there have been anything wrong with what Enron did?